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Australia's Fairfax considers demerger of real estate arm: source

Fairfax, the owner of The Sydney Morning Herald and The Australian Financial Review newspapers, on Tuesday entered a trading halt pending an announcement related to Domain.

PHOTO: REUTERS

[SYDNEY] Australian newspaper and radio group Fairfax Media Ltd is considering a partial demerger of its real estate advertising arm Domain Group to ensure its value is fully recognised by the market, said a source familiar with the situation.

While unlocking value for shareholders, a demerger would make Fairfax more reliant on newspapers in structural decline, as advertising migrates online and foreign rivals like The New York Times boost their online presence in Australia.

Domain is the company's highest-earning division and is valued by analysts at about A$2 billion (US$1.54 billion), equivalent to Fairfax's entire market value based on its last trading price. "Domain is an extremely powerful business and brand. It has been the main driver of Fairfax Media's profitability for some time," Alex Waislitz, an investor with shares in Fairfax Media, said in a statement. "It makes complete sense to list Domain separately and allow the market to assign a proper value to both Domain and the group's remaining media assets which it appears will stay in Fairfax Media." Fairfax, the owner of The Sydney Morning Herald and The Australian Financial Review newspapers, on Tuesday entered a trading halt pending an announcement related to Domain.

The company was considering a plan to make Domain a separate listed vehicle, with Fairfax retaining a 60 per cent to 70 per cent stake and distributing the remaining shares directly to its current investors, a source familiar with the matter said.

With property prices soaring to record highs in Sydney and Melbourne, Domain's earnings before interest, tax, depreciation and amortisation (EBITDA) leapt 40 per cent to A$120 million in the 12 months ended June 30.

Fairfax's EBITDA fell 2 per cent last financial year with a 45 per cent decline in its metro media division, reflecting the deep-seated troubles at its main newspapers.

Domain is a similar business to larger listed rival REA Group Ltd, which is controlled by News Corp.

REA Group, which has a market value of A$7.3 billion, on Feb 10 reported a 13 per cent rise in first-half EBITDA to A$200.1 million.